Investment in Viking
|12 Months Ended|
Dec. 31, 2017
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|Investment in Viking||
Investment in Viking
In 2014, the Company entered into a MLA with Viking to license the rights to five of the Company's programs to Viking. Under the terms of the MLA, no consideration was exchanged upon execution, but rather Viking agreed to issue shares of Viking common stock with an aggregate value of approximately $29.2 million upon consummation of Viking's IPO. As part of this transaction, the Company also extended a $2.5 million convertible loan to Viking under a LSA. As a result of these transactions, the Company determined it held a variable interest in Viking. The Company considered certain criteria in the accounting guidance for VIEs, and determined that Viking was a VIE and Ligand was the primary beneficiary of Viking. As a result, the Company consolidated Viking on its financial statements from May 2014 through May 2015, the effective date of Viking's IPO. The Company recorded 100% of the losses incurred as net loss attributable to noncontrolling interest because it was the primary beneficiary with no equity interest in the VIE.
In May 2015, Viking completed the Viking IPO and issued the Company approximately 3.7 million shares of Viking common stock with an aggregate value of $29.2 million based on the IPO price of $8.00 per share. In connection with the Viking IPO, the Company also purchased 1.1 million shares of Viking common stock for an aggregate price of $9.0 million at the initial public offering price. Upon completion of Viking’s IPO, the Company determined that Viking was no longer a VIE and the Company did not have any other element of control that would require consolidation of Viking. In May 2015, the Company deconsolidated Viking and began to account for its equity investment in Viking under the equity method and records its proportional share of Viking gains and losses in Loss from Viking Therapeutics in the Company's consolidated statements of operations. Viking is considered a related party as the Company maintains a seat on Viking's board of directors.
In January 2016 and May 2017, the Company entered into two amendments respectively to the LSA with Viking to, among other things, (i) extend the maturity of the convertible loan to May 21, 2018, (ii) reduce the interest rate from 5.0% to 2.5%, and (iii) extend the lock up period by one year such that the Company may not sell, transfer, or dispose of any Viking securities prior to January 23, 2017. Additionally, the amendments caused Viking to repay $1.5 million and $0.2 million of the Viking Note obligation to the Company in April 2016 and July 2017, respectively as further discussed below. Upon maturity or further payments, the Company may elect to receive equity of Viking common stock or cash equal to 200%of the principal amount plus accrued and unpaid interest. The Company has opted to account for the Viking convertible note receivable at fair value.
In April 2016, Viking closed an underwritten public offering of 7.5 million shares of common stock and warrants to purchase up to 7.5 million shares of its common stock at a price of $1.25 per share of its common stock and related warrants. The warrants have an exercise price of $1.50 per share, are immediately exercisable and will expire on April 13, 2021. As part of this public offering, the Company purchased 560,000 shares of Viking common stock and warrants to purchase 560,000 shares of Viking's common stock for a total purchase price of $0.7 million. The purchased shares of common stock and warrants are subject to the same terms as the shares issued in this offering. In addition, on April 13, 2016, pursuant to the terms of the first amendment to the LSA, Viking repaid $0.3 million of the convertible notes in cash, and issued the Company 960,000 shares of its common stock and warrants to purchase 960,000 shares of its common stock as repayment of $1.2 million of the convertible notes. The shares received as part of the repayment, like all Viking securities held by the Company, are subject to a lock-up period that ended on January 23, 2017 in accordance with the amended LSA. In July 2017, pursuant to the terms of the second amendment to the LSA, Viking paid $0.2 million of the convertible notes in cash, which reduced the accrued interest at the time. As of December 31, 2017, the aggregate fair value of the note receivable was $3.9 million. For the years ended December 31, 2017 and 2016, a gain of of $3.2 million and $0.3 million on the fair market value of the warrants was included within other income, respectively. See further discussion in Note 4 Fair Value Measurement.
The Company's ownership in Viking decreased to 32.7% after the public offering and the repayment of the convertible notes and further decreased to 17.6% and 30.3% as of December 31, 2017 and 2016, respectively. As a result Viking's public stock offerings, the Company recorded a dilution gain of $2.7 million and a dilution loss of $10.7 million for the years ended December 31, 2017 and 2016, respectively. These amounts were recognized in Loss from Viking in the Company's consolidated statement of operations.
The Company reviews its investment in Viking on a regular basis and assesses whether events, changes in circumstances or the passage of time, in management's judgment, indicate that a loss in the market value of the investment may be other than temporary. This might include, but would not necessarily be limited to, the period of time during which the carrying value of our investment is significantly above the observed market value, a deterioration in Viking's financial condition, or an adverse event relating to its lead clinical programs.
Based on a sustained low Viking common stock unit price during the year ended December 31, 2016, the Company determined that an other than temporary decrease in the value of its investment in Viking had occurred. The Company wrote down the value of its investment in Viking to its estimated fair value which resulted in impairment charges of $7.4 million for the year ended December 31, 2016.
The following table presents summarized financial information of Viking (in thousands):
The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss.
Reference 1: http://www.xbrl.org/2003/role/presentationRef